Energize Weekly, May 9, 2018
U.S. oil production and productivity per well from shale plays increased in 2017 making up more than half the nation’s crude output—a decade-long trend, according to the federal Energy Information Administration (EIA).
The average well produced more oil in 2017 than those drilled in previous years. The EIA has seen this year-on-year improvement since it began tracking the shale region production in 2007.
“More effective drilling techniques, including the increasing prevalence of hydraulic fracturing and horizontal drilling, have helped to increase these initial production rates,” the EIA said. “In particular, the injection of more proppant during the hydraulic fracturing process and the ability to drill longer horizontal components (also known as laterals) have improved well productivity.”
The techniques have helped production to increase even when oil prices fell and led to a slowdown in drilling activity, the agency said. In 2015 and 2016 rigs operating in the shale formations dropped, leading to a drop in production in 2016 for the first time.
But as wells were targeted for more productive areas and drilled more quickly, production rebounded, the EIA said. As prices rebounded, so did drilling, with operators focusing on the Permian region of West Texas and New Mexico.
While more geologically complicated, the Permian is a larger play and has more potential for production, the EIA said. Total production and production per new well increased in the Permian for 11 consecutive years. In all, the seven shale regions tracked by EIA supplied 54 percent of the nation’s crude in 2017.
While domestic production grew, Canadian crude oil production also grew. Imports outpaced pipeline capacity, driving Canadian crude oil prices lower and increasing rail imports to the U.S., the EIA said.
“The outlook for increased volumes of Canadian crude oil shipped by rail to the United States is highly uncertain despite significant U.S. demand for Canadian crude oil, specifically on the U.S. Gulf Coast,” EIA said.
Crude oil production in Canada increased 8.3 percent to 3.9 million barrels per day in 2017, while crude oil pipeline capacity out of Canada failed to keep up. As a result, Canadian crude oil exported to the United States by rail increased in 2017. In December 2017, U.S. imports of Canadian crude oil by rail set a monthly record of 205,000 barrels a day—almost as large as the 246,000 barrels a day shipped within the U.S.
The transportation constraints led to Western Canadian Select oil slipping from $10 a barrel lower than West Texas Intermediate oil to $25 a barrel lower between 2017 and 2018.
Still, by January 2018, the U.S. Gulf imported for the first time more Canadian oil, about 448,000 barrels a day, than it did from traditional supplier Venezuela, which was shipping 309,000 barrels a day.
“Since the removal of restrictions on crude oil exports from the United States, Canadian crude oil can be re-exported from the Gulf Coast without having to be segregated,” the EIA said.
